Nike Should Keep Jogging Higher

Last Friday, Nike (NKE) reported fiscal fourth-quarter results. The company beat the Wall Street bottom-line estimate by $0.03 per share and implied that next year's earnings could grow above consensus. Can Nike continue to run higher, or will it get benched?

For the May quarter, Nike's earnings came to $0.78 per share. Revenue rose 10.9% to $7.42 billion. Orders for North America totaled $13.3 billion, 11% higher than last year. Gross margin increased 120 basis points to 45.6%, mostly due to higher average selling prices and continued growth in the direct-to-consumer business (DTC). DTC was up 22% year over year.

Revenue in Europe increased 18%, but sales in China were only up 2%. Latin American sales were flat. Sales increased 25% in emerging markets. Emerging markets experienced double-digit growth in every category.

Future orders for delivery through November rose 22% in Europe, 14% in Central Europe and 9% in the emerging markets, and were flat in Japan.

On the conference call, management implied top-line revenue would grow above analyst estimates. For 2015, investors are expecting a top line of $30.32 billion, up 9% year over year. That's down slightly from the 9.8% growth the company put up in fiscal 2014. If you do the math, Nike is estimated to earn $3.40 this fiscal year and about $3.90 in 2016.

Of the 28 analysts that follow the stock, 18 rate the stock Strong Buy or Buy. The rest have the stock as a Hold based on valuation. At the current quote, you'd be paying 26x earnings for a company that only has 9% revenue growth.

In order to get to earnings of $3.40 per share, Nike will have to buy back a lot of stock -- and, in 2012, the board of directors authorized an $8 billion repurchase program. During the fourth quarter, the company bought back a total of 12.3 million shares for approximately $912 million. With the buyback in place, earning per share should rise about 14%.

Beyond this, there is a lot to like about Nike -- and I do like it. It seems the company has vanquished its competitors and is in a strong sales cycle, powered by interest in the World Cup soccer tournament. Nike brands such as Converse are on fire. In the quarter, that brand's sales climbed 15% to $410 million. Soccer-product sales rose 21%. Basketball sales jumped 19%. Young-athlete sales were up 16%, and the women's division saw a 12% increase.

With a lot of shares yet to purchase, most analysts have an $85 price target on the stock.

While I like Nike, I recommend waiting for a pullback before you buy the stock. Even if you don't get a drastic slide, Nike has a history of trading sideways between earnings reports. In 2013, shares spent the summer churning around. This year, the stock didn't do much for the months of April and May. Who wants to be around for that?

Revenue for the first quarter is expected to be up 11% to $7.76 billion. Gross-margin estimates average at some 45.6%, and this looks low, given that the recent wave of price increases has yet to make its way through the entire system. If I'm right about gross margin, the company should be able to beat the $0.88 earnings estimate for the first quarter.